With the ongoing trade war between the US and China sending the financial markets in turmoil once again, market watchers believe Bursa Malaysia’s real estate investment trusts (REITs) remains a safe defensive play against market volatility.
“REITs are indeed good to add to a defensive strategy portfolio,” said MIDF head of research Mohd Redza Abdul Rahman. “Looking at the REIT index, it has gone up nicely from 31 December 2018 closing at 924.87 points to 995.19 points on 24 May for a 7.6 percent return.”
Redza noted that the sectoral index has been stable in the last few months even as the overall market fell. In fact, the Bursa Malaysia REIT index has emerged as the more stable indices, compared to the FBM KLCI which registered a 5.46 percent decline since the start of the year, reported The Edge.
REITs continued to shine even when compared to the energy and construction indices, which rose 18.72 percent and 24.11 percent year-to-date, respectively. Although the energy and construction indices achieved their year-to-date peak in late April and have since then declined by around 12.1 percent and 12.5 percent respectively, the REIT index held steady at more than 995 points since posting its year-to-date peak of 1,004.07 on 8 May.
Another investment-bank analyst, however, said that the REITs attractiveness would depend on the bond yields’ movement.
“It’s too soon to say. We’ll have to look at where bond yields are headed from the US Federal Open Market Committee’s [decisions],” explained the analyst, who wished not to be identified.
Minutes of the latest US Federal Reserve meeting indicated that it would continue a “patient approach” to interest rate changes.
Bank Negara Malaysia’s decision to slash its overnight policy rate in early May was expected to benefit REITs as it would result to a better spread between the returns on government securities and their yields.
“With the rate cut, we can expect better private domestic spending especially with the coming festive season, which bodes well for REITs with exposure to shopping malls and logistics hubs,” said Redza.
Another key factor to watch out when judging valuations of Malaysian REITs are corporate earnings. To MIDF, Q1 2019 financial results have so far been decent in meeting expectations.
“Earnings are expected to be stable for the sector, thus providing window opportunities whenever negative overall market sentiment puts pressure on their price movements,” added Redza.